Income From Deceased Estate
How to deal with the asset income of the deceased estate
Scenario:
My partner who passed away during the 2016 financial year. I am in the process of completing his tax affairs for the 2016 year and need advice in regards to how to treat income from assets after his date of death. He owned several commercial properties with me. It is my understanding that if the property is owned as joint tenants, then the property automatically defaults to the surviving individual. If this is the case and there are no other assets or income, is there a need to complete an estate tax return or is the income from the property split up to the date of death and defaulted to me for the remainder of the year? Does the fact that the property has not been transferred with the titles office as at June 30, 2016 have any impact on this? Can a family discretionary trust distribute income to a deceased estate?
Explanation:
While ownership of property owned as joint tenants passes by survivorship when one of the joint tenants dies, that has no direct impact for taxation purposes. Provided that the deceased was taxed on a cash basis and not accruals, then income tax return must return all rent received from July 1 to the date of his death. It is only rent received after your husband passed away that is returnable by you. The same principles apply in respect of expenses and deductions.
The answers to the last question differ between trust law and tax law:
Trust law: Yes, if the trust deed specifically allows distributions to the deceased estate of a beneficiary. No, if the trust deed does not allow it.
Tax law: It becomes an issue of whether or not the family discretionary trust has made a family trust election (FTE) and whether the specified individual under that FTE is alive. While an interposed entity election (IEE) can be made with respect to a specified individual who has died, an FTE cannot be made with respect to a specified individual who has died. Whether the deceased estate can make an FTE and whether it can make an IEE with respect to the family trust – FTE will affect the ability of the deceased estate to utilise any franking credits on dividends distributed to it.
